Volkswagen, FAW to spend 1 billion euros on new plant

Volkswagen AG, Europe's largest automaker, and its partner China FAW Group Co plan to invest 1 billion euros (US$1.1 billion) to build a new plant in China, more than doubling the venture's capacity.

The plant in the northeastern city of Changchun will have an annual capacity of 330,000 cars when completed in 2007, said Wang Miye, a spokesman for FAW-Volkswagen Automobile Co, 40 percent owned by Volkswagen.

The partners will also expand production capacity at their existing venture in Changchun to 330,000 cars a year from 300,000, he said.

"They're running at full capacity to meet demand, so the expansion will allow them to make new models and not lose customers," said Gu Qun, who tracks carmakers at industry consultant Automotive Resources Asia Ltd in Shanghai. "More overseas automakers may follow suit and increase production.''

Volkswagen, General Motors Corp and other overseas automakers are expanding production in China, where one person in 120 owns a vehicle and private incomes are rising. Sales in China may almost triple to 5.8 million vehicles, including cars, trucks and buses, by 2010, according to a forecast from McKinsey & Co in Shanghai.

Volkswagen said in December it aims to double vehicle sales in China, its biggest market outside of Germany, to 1 million units in 2007 from about 500,000 last year.

Volkswagen and FAW's 11 billion yuan (US$1.3 billion) Chang-chun venture now makes Jetta and Bora models and Audi brand cars. Wang declined to say which model would be made at the new plant, for which the partners plan to break ground on July 15.

The German automaker has a separate venture with Shanghai Automotive Industry Corp in the eastern city of Shanghai, which makes Santana, Passat, Polo and Gol cars.

Volkswagen aims to sell 390,000 cars made at the Shanghai venture this year, a 30 percent increase from last year, sales manager Liu Wencheng said last month in Shanghai. The Chang-chun venture aims to increase sales by a third this year to 267,000 cars, Wang said last month.

Volkswagen plans to shift production of the Santana car to Yizheng city in eastern China's Jiangsu province from Shanghai, its partner has said. The shift would free up space at its Shang-hai plant to make new models.

Volkswagen, which makes China's most popular passenger cars, and Shanghai Auto in March also increased their investment in Shanghai by a third to 10 billion yuan.

General Motors, the world's biggest automaker, this week said it plans to expand production at its Shanghai venture, which is running at full capacity in two shifts. The venture can now make 100,000 cars a year.

The Qiche Web site today reported Volkswagen and FAW will start building a new plant in Changchun this month.

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